Making America Poor Again

The New York Times points out that many of America’s largest department stores might disappear forever as a result of the massive lockdown of America’s economy during the coronavirus crisis. Recently the entire executive staff at Lord & Taylor was laid off. The venerable Neiman Marcus is on the verge of declaring bankruptcy. According to the Times, “It is not likely to be the last.”

At the same time, however, the coronavirus crisis is exposing an important adverse consequence of having converted the United States to a welfare state some 90 years ago. Thatadverse consequences was impoverishing the American people.

Even before Covid-19, many Americans were living check to check, because of the costs of housing and child care, student debt payments, medical bills and the rest. Despite the cheery insistence of people like President Trump and personal finance gurus, the economic growth of the last decade had not brought wealth or security to most Americans. Fewer than half of American adults — just 47 percent — say that they have enough emergency funds to cover three months of expenses, according to a survey conducted this month by the Pew Research Center.

In the cohort of Americans who turned 30 in 2010, only half earned more than their parents at the same age, according to research by a team of economists led by Raj Chetty, a Harvard professor. The American dream had become a coin flip.That group of Americans, born in 1980, missed out on the post-World War II economic boom that lifted their elders to prosperity.

Let’s put this phenomenon into a historical context.

America started out with a type of economic system that is opposite to the welfare-state type of economic system under which today’s Americans have been born and raised. For the first 125 years of American history, there was no income tax and no IRS. Americans were free to keep everything they earned, and they decided for themselves what to do with their own money.

For more than a century, Americans also lived without such welfare-state programs as Social Security, Medicare, Medicaid, farm subsidies, education grants, SBA loans, foreign aid, and other programs by which the government taxes people to give the money to other people. For the first 125 years of American history, charity was entirely voluntary.

The result of this unusual way of life? People saved unbelievable portions of their income. Thus, unlike today, when an emergency hit, they had sufficient reserves to get them through it.

In fact, it was through that massive amount of savings that Americans discovered the causes of rising standards of living in a society. Their savings were put into banks, which then loaned them out to businessmen to enable them to purchase better tools and equipment, which then made workers more productive. Greater productivity meant higher revenues, which mean higher wages, which meant more savings, which meant more tools and equipment, which meant greater productivity.

It was that massive accumulation of savings and capital that gave rise to the highest and fastest-growing standard of living in history, especially as America was leaving the last part of the 19th century and entering the 20th century.

It’s worthing mentioning that this unusual economic system also resulted in the most charitable society in history. When people were free to accumulate unlimited amounts of wealth, many of them used that wealth to benefit mankind, on a purely voluntary basis. That’s how the churches, hospitals, museums, libraries, and opera houses got built, on a purely voluntary basis.

It also is worth mentioning that another critical part of America’s economic success was its monetary system, one that the Framers established in the Constitution. It was a gold-coin, silver-coin standard, and it produced the soundest money system in history, one that lasted for more than a century. It was another contributing factor to the enormous rise in the standard of living of the American people.

That way of life came to an end in the early part of the 20th century.

In 1913, Americans adopted a national income tax, which inverted the historical relationship between the American people and the federal government. The government now wielded the power to take whatever portion of people’s income it desired.

Also in 1913, Americans brought into existence the Federal Reserve, a central bank that would ultimately play a critically important role in the abandonment of America’s gold-coin, silver-coin standard and the adoption of an irredeemable paper-money standard.

Then in the 1930s, owing to the 1929 stock-market crash caused by monetary manipulation by the Federal Reserve, the federal government was converted into a type of economic system known as a “welfare state,” one in which the primary responsibility of the federal government became taking care of people.

How does a welfare-state government take care of people? Through the force of taxation. The government taxes one group of people and gives the money to another group of people, after deducting a major part to pay for the government salaries of bureaucrats who are preforming this service. There is nothing voluntary about the payment of taxes.

The crown jewels of America’s welfare-state system are Social Security and Medicare, both of which cost American taxpayers every year about $2 trillion. Add to that America’s warfare-state way of life and you’re now up to $3 trillion. Add to that all the other welfare-state programs, such as farm subsidies, education grants, SBA loans, and foreign aid, you’re now up to $4 trillion, even though federal taxes are only bringing in $3 trillion. That’s how the federal government is now saddled with a debt of $24 trillion. With all the welfare-state money being spent on the corona virus crisis, that debt is expected to rise to $30 trillion, all of which American taxpayers are on the hook for.

Meanwhile, the Federal Reserve is printing money like it was going out of style, which means that it is doing what it has been doing since its inception — plundering and looting people through monetary debasement.

Today, Americans need to do some serious soul-searching. Our country has had two different economic and monetary systems: One based on the principles of economic liberty and sound money and the other based on coercive taxation and redistribution of wealth and monetary debasement.

Which system do people want going forward? The one that once brought America economic prosperity and rising standards of living? Or the one that has left America impoverished?

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education.
He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at
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